Golfaholic, I am short and I am nervous. I tend to view the Y2K (only) companies on the following basis:
It is like a company acquires the rights to market the 1999 Titanic calendar. It is an assured best seller. Say that they paid $200,000 for those non-exclusive rights. One would assume that they would want to make profits during the next year that would exceed the $200K that they paid for their rights. Sales would start right away and ramp up so that by December 1998, they should have profits of over $200K. By that time, they should have recouped their entire investment and made a profit. That would give them a P/E of 1 or less. After that date, they anything they made would be a bonus.
What I don't understand is that DDIM is making only pennies per quarter when they need to make dollars per quarter to justify a price of $16. Consensus estimates for the balance of this year and next only add to about $2. Assume they double the estimates. This is still only $4 per share. What are they going to do to justify the other $12 per share?
After January 1, 2000, most of the problem will be fixed. Yes, there will be some cleanup that might last another year, but there will be a bazillion COBOL programmers and companies fighting for a smaller and smaller pie. It is hard to see how any company would be profitable in that environment The days of these companies commanding P/E's of 320 when a P/E of 3 is too high has to be numbered, doesn't it?
Inquiring minds want to know why my analysis does not agree with the market.
Thanks, Bob |
